Forum Topics Shorting Methodologies
edgescape
2 years ago

Both in the news and the university we always hear about how market participants do short sales on a company stock which they think will go down.

As an example, Temple and Webster was one company I looked at while studying their balance sheet for a Uni accounting assignment in Jan 2022. As it was near impossible to find out their inventory costs (since they are effectively drop-shippers) and they weren't talking about how they would deal with supply disruptions, So I decided to pick another company instead.. I then said to myself "Now TPW would be a good short at $10 considering we have all these supply chain/inflation issues starting to appear". Geez what an opportunity missed!

So that's the idea of finding a target out of the way. But how do you implement?

In basic terms, shorting is finding shares to borrow (usually a broker or investment fund/bank), selling them and buying back the shares at a lower price. Then we hand the shares back to the party that allowed us to borrow them.

But material regarding implementation of shorting is hard to find. Even my uni course only talks about how to calculate the margin but not "where" or "how" to find shares to borrow.

And I've noticed the implementation is hardly discussed here.

From my research, the only way I can think of to implement shorting is to trade CFDs. Or also purchase options (but not all companies have put options available for purchase)

I already opened a IG demo account to see how it works and indeed you can do shorts with CFDs. But the way they display the margin and when you get margin-called is a bit confusing even for myself who had done the subjects at Uni that cover margin ratios etc. I just wonder how normal retail people manage to learn this stuff!

So what are other people's experience in short selling? Do you actually call a special broker and find borrowed shares? Or do you use CFDs? Thoughts?

12

@edgescape i think you need a prime broker. which usually means you need a sizeable bank balance and a relationship so they will back you. MS MQ CS are big ones i think. remember the seen out of the big short when those dudes are trying to get an account. o/wise probably using options, buying a put, if available. not an expert

9

edgescape
2 years ago

I was also alluding to Prime Brokers if that was not clear enough

I think the problem is there are some on twitter/social media claiming they are shorting XYZ but they look more like a retail investor. In that case, if they don't have a relationship with a broker then what is the other means of shorting. Only way I can think of is via CFD or other OTC derivatives as well as options.

Not all put options are available, it depends on various factors regarding a security. I remember someone on twitter saying they were shorting LTR but at that time there were no put options available to buy when I checked the code. Still don't see the options but I do see warrants. Wonder if that qualifies?

8